Looking for a home in the Cleveland Park or Capitol Hill area? How much cash you have for a down payment is an important factor in the equation that determines your buying power. Here are some valuable tips on how to build the down payment you need.
1. Develop a savings plan by opening a special account and making regular deposits.
2. Cut unnecessary spending. Before buying anything, ask yourself whether you can do without it.
3. Ask for a raise or promotion. The squeaky wheel gets the grease!
4. Get a higher-paying job with another company or take a second job.
5. Minimize your tax withholding if you plan on buying a home within the same tax year. It's likely you'll be able to itemize deductions once you become a homeowner, thanks to the mortgage interest tax deduction.
6. Sell or borrow against other real estate you own. Sell your current home or second home (if you own one) to free up equity for your down payment. Or take a second mortgage on your first or second home, making sure you’ll still qualify for a loan for your next home.
7. Sell or borrow against securities. You may be able to get a loan against your securities from a stock brokerage. If you own savings bonds, cash them in at your local bank (but plan to pay the taxes on your capital gain).
8. Sell collectibles, heirlooms, a boat, RV or other tangible asset. Or consider whether you might be able to pawn items for a short time, with a realistic plan for retrieving them later.
9. Cash in or borrow against life insurance. Converting a whole-life policy to a term policy could provide you with coverage and cash.
10. Withdraw from your IRA if you're a first-time buyer. The law says first-timers (and those who haven’t purchased a home in the previous two years) can withdraw up to $10,000 from an IRA, penalty-free, to purchase a home. You will, however, have to pay federal (and perhaps state) income taxes on the withdrawal.
11. Borrow against retirement funds. You may be able to get a very low interest rate, but be careful the additional debt doesn't jeopardize mortgage approval.
12. Ask for help. If you're getting married soon, set up an account so well-wishers can contribute to your down-payment fund. Ask parents or others for a gift---current tax law allows one individual to give up to $13,000 per year to another individual (not a spouse) with no tax consequences. Seek an investment partner from among relatives and friends, offering them an equity-sharing partnership if they contribute some or all of the down payment. Also, if you're relocating, your employer may provide financial assistance in the form of a tax-free loan for your down payment.